Innovative Networks, Centrality and Firm Value : Evidence from Shared Patents

We find that network centrality is associated with a higher number and better quality of innovation. Network centrality also positively relates to a number of breakthrough innovations, and firms that exert greater influence in the innovative network have higher profitability. Moreover, network centrality is positively associated with a firm's valuation and future return predictability. These findings suggest that investors underreact to the information content on the innovative network. We also examine the possible channels through which network centrality impacts the predictability of future stock returns and find that firms that face higher R&D expenses, innovative efficiency, and greater competitive threats enjoy higher future returns. Overall, our findings provide new evidence suggesting that network centrality has considerable value for innovative firms